Posted
by
timothyon Tuesday August 02, 2011 @08:12AM
from the just-wait-for-the-worldwide-famine-of-the-'70s dept.

Hugh Pickens writes "Cyrus Sanati writes in Fortune Magazine that up until now, it has been widely accepted that being bigger was better for oil companies, but the announcement that ConocoPhillips plans to break up into two separately traded companies, separating its exploration and production unit from its refining and marketing units, took Wall Street by surprise, raising uncomfortable questions about the future of Big Oil. 'That's because the exploration side and the refining side of the oil business have little to do with one another,' writes Sanati. 'Contrary to popular belief, Big Oil has almost no control over the price of oil these days. That power squarely rests with oil-rich nations that hold most of the world's oil reserves and the Wall Street banks and hedge funds that speculate and make markets in the oil trading game. So even though ExxonMobil pumps oil, it can't guarantee that its refining unit will be able to profitably process a barrel into gasoline or heating oil.' ... 'If the ConocoPhillips story is a success for shareholders, there will be calls to break up Big Oil just in time for the annual meetings in the spring. So by this time next year, it is possible that Big Oil will go the way of Rockefeller's once gargantuan Standard Oil — with the markets, not the government, forcing a break up this time.'"

Who would need to be bigger? Seriously huge profits, and most exploration is already done. These companies have been exploring for years now for deposits. It is probably just a crafty way to hide the hordes of money they are making...

Exactly my thoughts as well. It also appears to move them one step further away from potential spills and the bad publicity that follows. The exploration units wont be household names. BP tried to hide that it basically owned that platform in the Gulf by outsourcing it IIRC. So this looks to possibly be another layer to hide profits and more. This isn't free markets creating competition and innovation, this is shell games and accounting tricks. It's also ridiculous to think ExxonMobil is somehow powerless at the behest of Wall Street traders when it was the #1 most profitable company in 2010. They dont tremble when a barrel of crude hits $100+, they laugh all the way to the bank.

Not just hiding profits, also splitting liability. BP is going to be paying a lot for the oil spill. Wouldn't it be so much more convenient if they didn't own or operate the rig and could just blame it on a small company, which could then pay its entire $1M capitalisation in compensation and then go bankrupt?

Not just hiding profits, also splitting liability. BP is going to be paying a lot for the oil spill. Wouldn't it be so much more convenient if they didn't own or operate the rig and could just blame it on a small company, which could then pay its entire $1M capitalisation in compensation and then go bankrupt?

You write as if you don't know very much about the oil business, at all. BP did not own nor operate the rig, TO did.

One problem you have not considered is your solution would probably have saved the gulf. TO and BP are multibillion dollar companies, and as such every interaction between them is handled almost lawerly, with infinite levels of ass covering and record keeping. As anyone who has ever worked in a situation like that knows, that leads to horrendous paralysis. Which is unfortunately exactly what you don't want on a drilling rig hovering over a 3 mile deep gas filled hole.

In your scenario, Mr Million dollar company says F U guys I'm hitting the big red switch and pumping the heavy kill pill downhole. Its only a million bucks not a billion. What actually happened was a lot of "you don't wanna be the guy who broke the billion dollar contract relationship" and "who is authorized vs who is liable to declare an emergency or not to" and "who gets to push what button when and why". Which is fine if you have all the time in the world, but if you don't then the platform blows up, everyones killed, and the gulf is flooded with oil, because you can sue individuals but you can't sue oil spewing out of a well.

Basically we have a super monopoly / ogliopoly situation now. That doesn't work so well. A bunch of little companies, even if a little artificial, would provide more efficient and safer operations overall.

Great idea. Let's say I'm a giant pharma. I decide to promote 'efficiency & safety' by dividing up each of my candidate drugs into its own 'independent' company in which I am NOT the owner, but merely the major investor. (Oddly enough, the other pharmas are more than willing to play this game, so we collaborate).

Throughout development, marketing, and distribution, the indie company then charges all of a drug's costs back to the parent company (where the real work is run & done, and to whom most p

Is that the kind of improvement in 'safety and efficiency' you were talking about?

Yes, basically. What you've described is not a big pharma company with a lot of corrupt legal loopholes, but a big pharma company that has completely divested itself of pharma and turned into a bank. You're still calling it a pharma company, which is weirdly inaccurate, kind of like calling my credit card company an "online book retailer" merely because I bought a book from amazon once.

Clearly a hundred little companies is better for the world than one big one.

Because I have seen the same bullshit in my area with the natural gas wildcatters (which I assume is close enough to oil for this discussion) and here is how it goes. Wildcatter splits in two, the drilling side and the processing side, anything nasty comes up, like say....oh I don't know....they make a big fucking environmental mess? They let the drilling side take the hit as it is only leasing the assets from the other company and then dissolve the driller and start anew. lather rinse repeat.

Until Insurance companies for Big Oil grow a spine and require that coverage be dependent upon quarterly regulated standards and safety compliance, cutting corners to maximize profits will continue to be S.O.P. throughout the industry, and accidents of negligence will increase.

Key requirement: BETTER REGULATION

Dumb things to say. Compliance with existing regulation is a necessary prior before "better regulation" (which probably isn't even needed!) matters. And from the insurance company's point of view, the expected amount that they have to pay out is the key parameter, not compliance with regulation. Keep in mind that demonstrated negligence, such as not complying with regulation, cuts down on the insurer's payout.

With something as big as the Gulf spill, the media vultures who are constantly circling for disasters like this won't be fooled by something so simple. And neither will the public when the media announces that BigOilCo owns the company that caused the newest natural disaster.

The PR was bad enough for BP in the last spill, and they were (somewhat) actively trying to clean it up. A lot of eyes were on them. How bad do you think the PR would be if BP had said "Well, it's not our problem. It's the problem of our Exploration subsidiary." So I don't think it's that good a get out of jail free card as you say.

This is not high school anymore: reputation is less important than money. Do you think all those big banks, and their bankers, give a damn about what we think of them, as long as they can take home huge bonuses ? same everywhere: the companies mostly don't care, the employees don't give a f**k.

This is not high school anymore: reputation is less important than money. Do you think all those big banks, and their bankers, give a damn about what we think of them, as long as they can take home huge bonuses ? same everywhere: the companies mostly don't care, the employees don't give a f**k.

I remember a lot of TV and radio ads around the time of the disaster, basically asking people to not boycott them. I also remember a lot of news talking about declining profits, and how the local BP stations were being hit hard. Now, obviously BP survived this, but it does sound like bad PR can certainly have an effect in this situation. When you have 8 gas stations all clustered together, all with the same prices and services, it becomes extremely easy to say "Screw BP, I'll drive 100ft and go to Shell

If the incredible cascade of not only screw-ups but willful negligence that lead to that specific catastrophe has so little consequences, the message is clear: do it again. Ditto for the financial upheaval, whose net result is that Goldman Sachs has even less competition now, lots of bankers walked away with millions in bonuses, and taxpayers paid billions in ransom. Oh, and no new regulation, and no new taxes. Did anyone go to jail ?

Do you think all those big banks, and their bankers, give a damn about what we think of them, as long as they can take home huge bonuses ?

Which is why the marketing unit is getting the big flushing sound in this maneuver. Before the BP disaster you can't get rid of the tv commercials on CNBC, that would sink the company. Then you get the biggest disaster in the history of offshore drilling. Financial effects of the reputation hit? A big "eh". Well I guess we can downsize the marketing department. Bye bye liberal arts grads! I'm sure the geologists will miss you (not).

Yes but to be fair the bad PR for BP was exceptional, Obama was at a low point in terms of ratings, and he used the situation to his advantage by playing the tough president coming down strong on big bad foreign BP.

BP had already said it would accept full cleanup costs and accepted responsibility (even though it wasn't certain at that point it was at fault, rather than say, TransOcean, and even though it wasn't the only shareholder in the well- Mitsui and Anadarko owned ~25% too). Despite them having said t

but frankly BPs response was quite responsible- they accepted fault, and accepted cleanup costs right from the off, there was no haggling, no bickering, they held their hands up and said "Yep, we'll accept fault" - now the investigations have largely concluded they are chasing money from the other parties responsible, but that's surely fair enough no?

Were you and I living in some sort of alternate reality? My recollection is that BP was allowed to setup a fund for some ridiculously small amount of money (a

Hiding profits is hugely important, since the firm with the most cash wins at the end of the day so there are many incentives to do this.

Now on to a small but important topic about the rig:

One thing I recall from my cargo/chartering days, if I placed and order for a vessel construction, then gave that vessel a contract to move my cargo for it's expected life ( 10 or 15 years ) after delivery, I could take the contract to a bank and they would finance the constru

Oil companies don't own the drilling rigs, as they are too expensive to maintain for the few months that they are drilling well-heads in a new field. Once the hole has been drilled and capped, there isn't much use for that drilling rig. Other times, they will be doing seismic, geological, oceanographic and meteorological studies for the next place to drill. They won't do drilling at any point until they absolutely know that there is something worth drilling for, and that the rig could withstand the local co

100 billion in profits on 1 trillion in sales means you have 10% margin out of that 90% is overhead. And you are making 1% profit. Only billion dollar companies can live with that. Even Dell makes 15%, and Apple makes 30%.

Record profits only have meaning when you think like a small minded idiot.

Not to defend exxon but wall street speculators cause more price swings than any other force, from the big oil companies to the country oil cartels. Pass a law that says you must hang on to futures trades for 24 hours and watch the price stablize.

That's probably the most intelligent comment I've seen in this thread in all regards. Especially the point about locking people into futures trades.

And the original article is right -- oil exploration/production and refining have relatively little to do with each other. They don't even profit based on the same numbers. Production profits based on the market value of the particular type of crude. Refining profits based on the "crack spread", the difference in price between a particular refined product and its feedstock. Both fluctuate wildly and independently.

There is an "oil cartel" -- OPEC. But acting as though every entity involved in the oil industry, from multinationals to refiners, is likewise a cartel, is just plain silly. The amount of competition between different oil companies is huge. They're all selling basically the same product**, so they deal in very small margins, trying to out-optimize their operations relative to each other, with pure, raw scale being the way to keep their total profits up.

** -- There are some ways oil companies try to distinguish their products from each other, namely in how they market branded gasoline (not just commercials talking about additives or whatnot, but more in terms of marketing to retailers -- getting them to pay a small premium in exchange for services like delivery and whatnot).

The amount of competition between different oil companies is huge. They're all selling basically the same product**, so they deal in very small margins, trying to out-optimize their operations relative to each other, with pure, raw scale being the way to keep their total profits up.

Ah one minor correction. In exploration and production you are correct.

In refining there's lots of goofing around with nations wanting massive oversupply of capacity for national defense, and state owned refineries not really caring much about profit. Meanwhile the greenies want to burn the gas in their giant SUVs but they want to shut down all the refineries, or at least make just a couple really huge monopoly refineries. Monopolies are not exactly famous for their efficiencies. And as we begin the ear

And the original article is right -- oil exploration/production and refining have relatively little to do with each other. They don't even profit based on the same numbers. Production profits based on the market value of the particular type of crude. Refining profits based on the "crack spread", the difference in price between a particular refined product and its feedstock. Both fluctuate wildly and independently.

If you're vertically integrated you don't sell your oil on the open market, and you don't ref

100 billion in profits on 1 trillion in sales means you have 10% margin out of that 90% is overhead. And you are making 1% profit.

Not sure I follow your math here. 100 billion in profits on 1 trillion in sales means you have 10% margin, true. But the 90% overhead you speak of is not part of profits. Profits are what is left AFTER overhead. What did I miss?

It is probably just a crafty way to hide the hordes of money they are making...

I'd say it's more likely a way to seperate the reputations of the two units.

As oil and gas supplies dwindle we are being driven towards sources that are dirtier and/or riskier. Remember the deepwater horizon incident? remember the tar sands controversy? remember the fracking controversy? If you were running a consumer facing buisness would you really want to be associated with that?

Reputations? They have reputations? As gouging and lying sons of bitches, yes.

Don't drink the koolaid about the bogus problem with these subsidized, molly-coddled, tax-subsidized, media manipulating bunch of crow bait.

They want to break up to see their new tracking stocks soar. Make no mistake about the intent: this is about making more money with the same market-manipulated evil that they've used for the past 40 years.

I hear you talking, while oil companies show some of the highest profits in their histories, while the speculators jar it up further by yanking each little nugget of negative news into a buying frenzy that's driven the prices to consumers to historic highs.

We don't have a drug addiction problem. We have a concerted effort over the past 60 years to remove infrastructure that aided public transportation and trains, to aircraft and countless lanes of highways and strip malls. If you believe that su

Your comment shows how little you understand about the market. They do have massive profits but the article is about how they are breaking up to separate the finding, drilling, and production of crude from the refining of that curde into usable products. They're doing this because exploration and production is currently very profitable while refining and marketing is have trouble with shrinking margins due to the price of crude, increased regulation, etc. They're getting smaller not to hide profits but t

What happens when two companies start working together, exchanging goods for services, etc? Their overhead goes up because now they are dealing with two different cost/profit models that are pulling from different budgets. Typically the primary reason for companies to merge is to reduce those costs and bring a service "inside."

The drilling companies will see a rise in costs because they won't have a parent company to absorb overages or internal costs. The

That might be the case, government moves slowly, the question is whether it was a monopoly when the government started it's prosecution. That prosecution often has the effect of the curbing a companies worst excesses which means the prosecution may be enough to correct the company's behavior, regardless of the outcome.

And the summary gives an example where government had to step in because the market created a monster. Long ago, granted, but still looked on as a favourable move. Naturally, when the economics no longer make sense, "the market" brings about a change. Though, this isn't necessarily a better solution without governments protecting the entities; oil-rich nations and nationalized oil corporations will gobble up the smaller players if given the chance.

It affects "us down here" for the same reason that everything else that huge companies do affects us.

When companies get large enough, their size alone makes them too big for anyone's good. They become too influential. They become unable to adapt and change. They become "too big to fail". They become too powerful to punish for misdeeds. They become too entrenched for new competitors to enter the market.

Anything that counteracts some of that, even if only partially, counts as a Good Thing in my book.

However my gut is telling me that this is probably going to be worse for us than better. Only reason I can think is that this is a trick to offload liability (for BP type disasters) to smaller, disposable companies. My brain just won't let me believe these guys are doing something for the good of the people.. even if indirectly.

The logic behind the reverse merger is that the wildcatters are given multiples of 20-50, while the integrated companies only get 9-10. Refining has low margins, but the exploration side benefits on new discoveries. With all the shale plays, more oil is being discovered in the US every week.

One possible benefit to those who breathe is that the hydrocarbon resource is detached from traditional refining mechanisms. Maybe we will see more hydrogen solutions or cleaner natural gas pushed to the market if the

Any conglomerate should be split up. It just make sense. Like modular programming does.

The output of any division of a conglomerate should be accessible to the whole market, not just the big encompassing company that holds the division.

Letting companies grow bigger and bigger only leads to near-monopolistic situations, and eventually less choice for the consumer.If, for example, Apple were split into two companies, one for software, one for hardware, this would probably lead to a much richer variety of products. And, also important, more opportunities for users to tinker:)

If, for example, Apple were split into two companies, one for software, one for hardware, this would probably lead to a much richer variety of products. And, also important, more opportunities for users to tinker:)

Much as I hate apple, the tie in that have with software and hardware is one of the advantages they have over PC from (most) consumer perspectives. The operating system works nearly perfectly with the hardware because they define the hardware. They don't have to deal with a bazillion unique configurations.. only a few that they've chosen.

Apple splitting up this way would be a mistake on their part.

And I think what we draw from this is that in a lot of cases (especially cases where things are evolving) there is an advantage of being a big blob. I think where it makes sense to split something up is when the components stop evolving significantly (which may at this point be the case with oil). When a widget just becomes a widget, it makes sense.

I agree that conglomerates should (at least in most cases) be split up, but not by the government. Most conglomerates were formed when various factors favored centralizing everything. What made that economically efficient was the cost of communicating information from one place to another. It was more efficient to put all of the decision makers in close proximity to one another and send the necessary information to them at that central location since much of the same information was necessary for making decsions about disparate business entities. When the cost of transmitting information was high, this was the most efficient way to organize things.
However, as a result of this centralization, a lot of information that was only significant to one of the business entities was "lost" to the decision makers. This was not critical because the savings of only having to transmit the other information to one place made up for it. Now, as the cost of communicating information to various locations has fallen, the cost savings of centralization have diminished to the point that much of that "lost" information is now more valuable than the savings from centralization. This will gradually lead to the breakup of conglomerates along the fault lines of information.
Of course, not all conglomerates will voluntarily break up. But as their various divisions are less able to compete with the now independent divisions of their competitors, all of their divisions will suffer. If the refining side of an oil conglomerate, must get all of their oil from the exploration side they will not be able to take advantage of cost savings from dealing with outside exploration companies that are at the moment more successful than the in-house exploration division. If the exploration side must sell all of their oil to the refining side, they will be unable to maximize profit by selling to outside refiners who at the moment have a need to pay higher prices to obtain oil. If both sides are free to deal with outside competitors of the other division, the advantages of having both in the same company diminish.
The market is perfectly capable of sorting this out. If I am correct, the new companies of the ConocoPhillips split will be more successful than they were as part of one company and other companies will follow suit. Those that do not will gradually fall behind in the market until they either do so, or they go out of business.

Of course, not all conglomerates will voluntarily break up. But as their various divisions are less able to compete with the now independent divisions of their competitors, all of their divisions will suffer.

Except that the stock holders in the more successful separate companies are unlikely to be willing to accept stock in a less profitable company that has not divided into divisions and the company that hasn't divided into divisions is unlikely to have the cash to buy up their competitors.

And watch someone develop a product that makes yours obsolete. Unless you can get the government to help you keep competitors out (which of course is part of why we have so many big powerful companies as it is), it won't work.

Most conglomerates were formed when various factors favored centralizing everything. What made that economically efficient was the cost of communicating information from one place to another.

Or large antes to just be in that particular market. If it requires a large staff of paper pushers to run a refinery, then you'll see a lot fewer small refineries. Barrier to entry is the primary constraint IMHO.

I would have to agree with anrego about the Apple part. Forgive me for not using a car analogy, but if you're getting married, there is a large amount of work to do. You have to buy a cake, pick decorations, write your vows, (find someone to conduct it if you're an atheist), find a place to hold it, throw the biggest formal party of you life, and plan a honeymoon on top of that.

Or you could hire a wedding planner.

Apple is a wedding planner. They take care of all the details and just try to integrate several

Something that deserves more study is the question of why a large monolithic company can outcompete an ecosystem of smaller units in the first place. The existance of large companies seems to contradict all the theory of how a free market is supposed to efficiently self-organize and motivate people.

Something that deserves more study is the question of why a large monolithic company can outcompete an ecosystem of smaller units in the first place.

Probably because of its anti-competitive advantage... a large conglomerate has the strength to lock its customers in, lock their competitors out. Heck, they create their own "ecosystem" and completely control it (look at the Apple "app" ecosystem).

And, from a commercial perspective, the exact opposite is always much better. Why outsource to a third-party that is ALWAYS making profit on top of their operating costs, when you could do it yourself if you have enough to buy the equipment/personnel in the first place?

Take a school. Why bother hiring a cleaning company when you could just hire cleaners? Why bother to hire an IT company when you could just buy and manage the computers yourself? Why bother to pay an external caterer when you could just b

I know that if I owned a large company, I'd try to keep as much as possible in-house and expand the company rather than use third-parties. Greater control, greater profit, and other services you can offer other companies. If I were Google, I *would* own a motherboard manufacturer by now, and be churning out my own custom-built PC's. I probably wouldn't own a processor manufacturer (economies of scale again), but I'd almost certainly be doing lots of things in-house by expanding the scope of the company, to the point where I'd be making my own racking, basic datacentre equipment, etc. What better advert than "Google only uses Google motherboards/UPS/rack/cables/switches/etc. - which will be available for sale next year"?

Every time you employ a third party, you are paying the amount that they have to charge to a) do the job you want, b) do lots of other jobs for other people, c) hiring people to do all those jobs permanently, pay pensions, h&s, etc. and d) make a profit and expand their own business. Do it yourself, and you save all of d) and quite a bit of the others to get exactly what you want.

Would you make your own toilet paper for the bathrooms? And build your own office furniture? You think Google's best use of resources is to buy coffee farms to supply beans for the office coffee maker?

Do you do that now? An an individual, you are a large company. (Billions of individual cells, on top of the all consultants you have working in-house (bacteria, viruses).) Do you grow your own food? Did you build your own computer from the ground up? Did you build your own car? Do you supply your own e

Every time you employ a third party, you are paying the amount that they have to charge to a) do the job you want, b) do lots of other jobs for other people, c) hiring people to do all those jobs permanently, pay pensions, h&s, etc. and d) make a profit and expand their own business. Do it yourself, and you save all of d) and quite a bit of the others to get exactly what you want.

Read up on opportunity cost and comparative advantage. I.e., Econ 101 stuff. Classic example: you're a lawyer, and can type 100 words a minute. Your secretary can type only 60 words a minute. Does that mean you should fire your secretary and type up your own memos, calendar appointments and follow-up letters? Of course not, because doing secretary work costs you the money you could make doing lawyer work in that time, and only saves you the cost of a secretary.

It's worse than you think. Energy prices are in the hands of shadowy capital funs and petro-dictatorships. The (relatively) nice guys in the petro-dictatorship group are the petro-kleptocrats. The rest of them buy stability for their repressive regimes by funding and exporting terrorists. Both Saudi Arabia and Iran have been arming terrorists, giving them small piles of cash and pointing them at countries they don't like for decades. Often that country is the United States.

The Bush tax cuts were to stimulate the economy after 9/11 (they failed to do so)

And yet, Federal tax revenues increased by 30% from 2000 to 2007 (and then began dropping in 2008 as the Housing Bubble burst).

And this in spite of the recession immediately post-9/11, which saw tax revenues drop 10% over a two year period.

Sorry, the Bush tax cuts are not a good example of the idea that tax cuts supposedly lead to greater revenues.

First, adjusted for inflation (2005 dollars), revenues were about $2.3 trillion in 2000 and $2.4 trillion in 2007. That's only 5% growth, less than 1% annually. If we hadn't cut taxes, revenues would have grown much more.

Second, most economists don't credit the Bush tax cuts with more than a small part of the growth in GDP. There's a lot more going on in the economy than tax rates. The total revenues collected over that time period would have been much greater without the tax cuts. And our national debt would be trillions of dollars less.

Finally, why stop in 2007? That's an arbitrary number that you picked because it fit your argument best. Inflation-adjusted tax revenues in 2009 were BELOW levels in every year since 1997. 2010 was only slightly better.

I'm all for reducing budget deficits, and for tax policy reform. Almost everyone should be paying higher taxes right now.

The Bush tax cuts were to stimulate the economy after 9/11 (they failed to do so)

And yet, Federal tax revenues increased by 30% from 2000 to 2007 (and then began dropping in 2008 as the Housing Bubble burst).

And this in spite of the recession immediately post-9/11, which saw tax revenues drop 10% over a two year period.

Insightful? Really? When the poster literally makes up a non-existent recession to explain the drop in tax revenues when the rates were cut?

Look at the data folks: www.bea.gov/national/xls/gdplev.xls (or if you prefer a graphic representation - http://static.seekingalpha.com/uploads/2010/2/26/saupload_gdp2000_2010.jpg [seekingalpha.com] ). There was no post "9-11 recession"; in fact there is not a single quarter after the Bush tax cuts went into effect when the GDP did not increase, until the crash of 2008.

In real terms (inflation adjusted) there was no "30% increase". U.S. tax revenues fell sharply (18%) with the Bush tax cuts going in to effect, and recovered their former level only in 2006 (see second column, 2005 constant dollars: http://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/hist01z3.xls [whitehouse.gov]). But the country had grown in population by 6% over the interim so this was still down from previous levels. It never recovered to the previous level on a per capita or GDP fraction basis 9http://www.deptofnumbers.com/blog/2010/08/tax-revenue-as-a-fraction-of-gdp/).

Sounds like a good way to limit exposure to unexpected costs associated with drilling. Sell the crude to the refining unit at cost of production and the drilling unit accumulates no profits that would be paid out as a result of a large spill. It would just go bankrupt, sell off any equipment it owns (if it owns any at all) and reform under a new corporate charter. Profit!

That power squarely rests with oil-rich nations that hold most of the world's oil reserves and the Wall Street banks and hedge funds that speculate and make markets in the oil trading game.

Wherever the market is being broken down you either find Big Government or Big Finance. Sometimes both, but we're seeing that Big Finance is as much a mortal enemy of the free market as Big Government.

exploration and production unit from its refining and marketing units, took Wall Street by surprise, raising uncomfortable questions about the future of Big Oil.

The economist podcast discussed it some last week, as they discussed their previous weeks issue. I've noticed a disturbing trend where/. bifurcated around March and now some stories are fresh but the late ones are actually going further back in time as time goes on. Wasn't this a ST:TNG plotline?

Anyway, the ominous BS makes no sense. I've been following this market for, well, decades, now, and all it boils down to is the oil majors are extremely competent at exploration and production, both directly and indirectly by financing other companies exploration and production work. The refining operations are almost meaningless now because every nation either wants to shut them down to prevent pollution (although the hypocrites still want gas for their SUVs) or they want massive overproduction capability for strategic warfare reasons. So refining is a dead market. As for the marketing units, yeah, they're real geniuses alright, look how everyone loves BP, for example.

So all it amounts to is focusing on what makes a net positive on the income statement and casting off the deadwood that is a net negative to the income statement. Its the oil industry equivalent of joe average non-IT focused business outsourcing their IT department, just like they've outsourced their electrical production and (mostly) their "business standard uniform" production and maintenance.

The reason its spun as doom and gloom, is they have no empathy and only see the effect on themselves. The marketing unit sponged off the profits of the production unit to make CNBC commercials that were beyond stupid. Now they are cast off like the debris they are, so they won't have the cash to pay to CNBC... So, MSM is going to get less advertising bucks from the oil majors. Hmm, I wonder how they feel about that? Expect some attack stories in the near future along with the doom and gloom, and then the MSM will find someone else to attack and it'll all be ignored.

There seems a bit of confusion here between marketing, advertising and PR. I don't think the marketing units make adverts specifically, I think they market oil products, i.e. sell them to people and companies. I suspect that marketing oil products is fairly profitable, but I am not an oil marketer. BP, for instance, probably still markets quite a lot of oil products fairly profitably, regardless of any damage to its 'intangible' brand value in one particular country.

So, MSM is going to get less advertising bucks from the oil majors. Hmm, I wonder how they feel about that? Expect some attack stories in the near future along with the doom and gloom, and then the MSM will find someone else to attack and it'll all be ignored.

I couldn't help but crack a little smile when I read that. This may not be a "victory" for the little guy, but I still find it amusing that the same lying whores (the MSM) who the greedy bastards (the oil companies) paid might turn on their masters. Th

So "Big Oil has almost no control over the price of oil these days. That power squarely rests with oil-rich nations that hold most of the world's oil reserves" is NOT the government (actually many foreign governments) controlling the price of oil?

So the power of governments of Saudi Arabia, Venezuela, and Russia becomes a triumph of libertarian free market ideology?

Yes, in the same world where the high economic growth of the communist-run, government controlled economy of the People's Republic of China demonstrates the triumph of "economic freedom"

True, but if it were a free market then the price signal should indicate that additional capacity should be brought online which I don't believe is happening. I always hear that OPEC wants to increase productions but doesn't have the capacity, but the moment prices start to drop they announce that they will be cutting production.

The free market can only bring capacity online if the capacity exists.

A good reason to cut production quickly is that it's better for the overall production of the oil field if you don't stress it too much. Taking it easy gives the oil a chance to settle, and will increase the lifespan of the field.

We've exported most of the industry to foreign governments where only state-owned corporations are allowed to drill for oil but "the price is determined by the free market?"

After having a front-row seat to the slow bleeding inflicted upon the industry over the past two and a half decades, I was curious about how the people the rest of y'all handed the power to felt about y'all. This morning I found out:

To me this sounds more like "we want to get rid of the expensive geologists and engineers" than a break-up of the vertically integrated players. And besides, there aren't that many places that are unexplored. As long as they can get oil from the middle east and third world (using third world labor prices) it makes sense.

To me this sounds more like "we want to get rid of the expensive geologists and engineers" than a break-up of the vertically integrated players

Its extremely important to note that one "bunch" of units was a net positive to the balance and income statements, and one "bunch" of units was a net negative or in the case of refining is floundering right around zero.

All the geologists and (most of the) Pet Eng work for the net positive group. I think their jobs are pretty safe. If anything, without the deadweight holding that group down, their salaries and bonuses are gonna rise.

Some of the pet eng guys and all of the chem eng guys work in the flounder

When the oil refiners and distributors have an interest in seeing the price of their inputs go down and they bid accordingly, the pressure will be for lower prices. Today, Exxon acquires leases, explores and extracts crude oil. Much of their market value (what Wall Street rewards them for) is the perceived value of their reserves. So the higher the price of crude, the better they look to investors. Meanwhile, Exxon refines and distributes products. That arm of the business is rewarded for volume times the difference between input costs and sales. So it would seem that cheaper crude would help their market share. In the final analysis, when crude prices go up, so does Exxon's share price. So currently the refining arm isn't motivated to push prices down.

The whole market is geared up to bid up crude prices. Much like the California energy crisis, everything is put onto the spot market and passed through as many speculators a possible. And much like 'sane' energy markets, once the players aren't sitting on both sides of each bid, I'd expect to see more fixed price long term crude delivery contracts. This will cut the speculators out of much of the market. This can only be good.

This story seems to forget the bottom line, many companies do what they need to make the biggest profit, in this case, split, and allow for a smaller part to take the bigger part of a debt, which they can declare bankruptcy for later....has nothing to do with the oil trends, trust me. no oil company will be going smaller any time soon.

The government of Saudi Arabia acquired a 100% interest in Saudi Aramco in 1980. That's when the US Big Oil firms ceased to control production. Since 1993, Saudi Aramco has controlled its own refining and marketing.

A small quibble over terminology but in a post-oil world, the capture of energy and the transportation of energy are two seperate problems. "Hydrogen as fuel" is one possible solution to the transportation problem, completely seperate from the capture problem.

It might not be the oil companies fault as is some states there is a minimum markup that must exist on gasoline. Here in Minnesota it is $0.08 a gallon. Also the states [minnesotagasprices.com] and federal government ($0.184 per gallon) make far more money from gasoline taxes [gaspricewatch.com] than the oil companies make in profit from the sale of gasoline. Also keep in mind how many billions of gallons of fuel we burn each year [eia.gov] (about 378 million gallons a day). What you have is a low margin very high volume product.

The nationalizing trend started in the 60ies, about the time Opec [wikimedia.org] formed; many countries found out they could earn much more by controlling the business directly, and in many, the private (often foreign) companies paid very little (or none) of taxes/royalties for extraction/processing/distribution/export, etc.

That was the case of Venezuela, for a hundred years, US corporations extracted the best lighter Oil and burned immense natural gas reserves and even heavier crude in the way. In 1975 the whole industry